DCR Accepting Applications for Undue Concentration in Los Angeles

Posted by Margolin & Lawrence on September 17, 2019


 

Don't panic. Although the first application cycle for cannabis retail licensing in the City of Los Angeles closed this morning, the real fun is only beginning. After today, the City’s Department of Cannabis Regulation (DCR) will begin to process and review applications submitted in Round 1. Over 800 applications were submitted in the first round, but only 100 applicants will be issued a license through this electronic process. Applicants who are unable to obtain a license in Round 1 of Phase 3 will be eligible to apply for one of the 150 licenses to be issued in Round 2, although it is anticipated that the final round will yield an even larger applicant turnout. However, applicants can apply for a license in an area of undue concentration, and there is no limit on the number of licenses that can be issued through the undue concentration process. Under Los Angeles Municipal Code (LAMC) SEC. 104.20 (Part a.), the number of Social Equity licenses to non-Social Equity licenses is 2:1, which means that if 190 licenses were issues through Measure M Priority Round 1, 380 should be issued through a combination of Round 1 and Round 2 Phase 3 processing, and the "Public Convenience or Necessity (PCN)" process (for areas of undue concentration) described below. If the city abides by its own ratio, 130 retail storefront licenses will be authorized in addition to the 250 through the electronic process. 

WHAT IS "UNDUE CONCENTRATION?"

Phase 3 applicants are subject to the “undue concentration rule” passed into LAMC which restricts business location eligibility based on data from the 2016 American Community Survey, not on any state law requirements. The rule sets a limit on the maximum number of licenses that can be issued in each Los Angeles Community Plan Area. The implementation of undue concentration in Los Angeles further complicates what is already a difficult task for many hopeful cannabis entrepreneurs who have been verified for the City’s Social Equity program, which aims to provide priority licensing and accessibility to individuals who have been disproportionately impacted by the war on drugs. Phase 3 Social Equity applicants must find properties that meet not only the plethora of other local requirements (e.g., correct zoning, 700 feet distance from any other dispensary or “sensitive use” areas) but also within specific communities that has not reached their license cap -- unless the candidate is able to successfully lobby City Council to approve them through the PCN process.

THE PUBLIC CONVENIENCE OR NECESSITY (PCN) PROCESS

The "Public Convenience or Necessity (PCN)" process.  process was established by the City Council and passed into LAMC to provide applicants who wish to apply for a license in an area that has already met undue concentration a chance to appeal their ineligibility based on the undue concentration rule. Applicants must submit an online application and pay a $1,499 PCN request fee to be routed to the City Council. Then, applicants must lobby the City Council to receive their approval and become eligible to apply for a license in an area that is undue.

Six of the 36 Community Plan Areas in Los Angeles have already met undue concentration. These areas were deemed unduly concentrated (with zero licenses available) prior to the Round 1 application cycle which began on September 3rd. At that time, several other Community Plan Areas had as few as two or three licenses remaining. These numbers can be viewed for each Community Plan Area on the DCR’s interactive map. The DCR will only issue the number of licenses indicated as “available” on the map in each Community Plan Area during Round 1, and licenses will be distributed on a first-come-first-serve basis. Therefore, even individuals who applied for a Round 1 license in an area outside of the six that have already reached undue concentration are subject to the consequences of the regulation and may be routed to the PCN process. In its review of applications submitted during Round 1, the DCR will issue licenses to eligible applicants on a first-come-first-serve basis (i.e., applicants with an earlier application timestamp will be processed first).Once an area becomes unduly concentrated, Round 1 applicants with later submission timestamps will automatically be routed to the PCN process unless their location is within 700 feet of a sensitive use property or another dispensary. Although the application window for the 100 Round 1 licenses closed this morning, the online PCN application will remain open for applicants that did not apply during Round 1 and wish to apply for a license in an area of undue concentration.


Other cities and municipalities in California who have not enforced additional location requirements like the undue concentration rule -- including Oakland, the very city Los Angeles modeled its Social Equity program after -- attest to the rule’s redundant and excessive nature. The 187 businesses currently holding retail licenses in Los Angeles who applied in Phase 1 as Existing Medical Marijuana Businesses (EMMDs) were also not subject to this rule. In addition, places like the  Oaksterdam cannabis dispensary district in downtown Oakland have been havens of community, not crime. Moreover, the unfairness that can result from a system like the PCN process -- which has essentially no guidelines and is subject to the very sticky nature of local politics -- would be eliminated if the City simply allowed everyone who applied to run a dispensary, so long as they respected the sensitive use requirements other than the intradispensary buffer. Our firm will continue to advocate for the eradication of the undue concentration restriction but is helping applicants navigate the requirement and its consequences since the situation does exist presently. 

WHY YOU WANT US TO LOBBY FOR YOU

Over 800 applications were submitted in Round 1. It is likely that several more Community Plan Areas in addition to the existing six will become unduly concentrated and applicants in these Areas will be required to undergo the PCN process - regardless of whether or not their Area was one of the original six. Given the high degree of uncertainty regarding who will be subject to the PCN process, our team is proactively preparing to take the first steps of a PCN appeal for each and every one of our clients who applied during Round 1.

Margolin & Lawrence has obtained over 200 state and local cannabis licenses throughout California and one in Massachusetts. Our founding partners, Allison and Raza, have litigated cannabis and other drug cases throughout their careers ( 17 and 16 years, respectively ) across the state and federal courts of our country, and have appeared in Hawaii, Utah, Nebraska, and Nevada, just to name a few. Our years of experience trying marijuana cases in front of juries has trained us for the battleground that is city politics.

Their experience fighting the war on drugs and fighting for drug and marijuana defendants, specifically, gives them the credibility to discuss the Social Equity program and their clients' willingness to re-enfranchise those who have been systematically excluded. Our firm was founded on the same core values as those of the Los Angeles Social Equity program. Allison and Raza have demonstrated a passion for drug legalization and criminal justice reform throughout (and even before) their careers.

Allison began her drug law reform efforts at age 12 when she discovered the insanity of the drug war while writing her sixth grade DARE essay on the Medellín Cartel. Her parents' careers as criminal defense attorneys and advocacy for drug law reform gave her an early and rare insight into the traumas inflicted on people, by the criminal justice system. During her time as a Harvard law student, she published her thesis On the Right to Get High where she argues for the decriminalization of all drugs and states that current state and federal laws are unconstitutional.

Before working with Allison in 2009, Raza worked at the CATO Institute, the ACLU, and the Center for Individual Rights fighting on behalf of individuals who have been disproportionately impacted by the war on drugs. He was also a federal clerk for the 9th Circuit Court of Appeals. Together, Allison and Raza founded their 501c4-registered lobbying firm, Advocates for Healing America, in order to advocate for drug policy reform and provide support to political candidates with a like-minded agenda.

Margolin & Lawrence remains committed to our founding values and will continue to do everything in our power to ensure we help individuals who have been who have been disproportionately impacted by the war on drugs. Our current efforts are aimed towards ensuring that victims of this war have the access they deserve to reparative government programs such as the Los Angeles Phase 3 Social Equity licensing process. 

If you have applied for a Round 1 retail license or if you are seeking to apply for a license via PCN or Round 2, we invite you to contact a member of our team immediately to discuss how we may be able to advocate on your behalf. We cannot take clients with retail properties that are within 700 feet of our current clients and are accepting new clients on a first-come-first-serve basis. Therefore, we recommend contacting a member of our team sooner than later to minimize the chances of conflict.

Phase 3 Round 1 Application Aftermath:

Posted by Margolin & Lawrence on September 5, 2019

Just yesterday, the Department of Cannabis Regulation (DCR) opened up the application process for Round 1 of Phase 3 retail storefront licenses in the City of Los Angeles. Due to heavy restrictions and high demand, appropriate locations for these storefronts can be difficult to come by. Many applicants have locations which meet all guidelines, yet still fall within a community plan area that has reached “undue concentration.” Here’s the 411 on what is expected to happen after the opening of Phase 3 Round 1 applications:

Everything You Need to Know About Los Angeles Phase 3 Licensing

Posted by Margolin & Lawrence on July 28, 2019

 

What's the 411 on 420 and "Undue Concentration?"

Posted by Margolin & Lawrence on July 3, 2019

Recently, rumors and misinformation have circulated surrounding LA’s “undue concentration” rules for commercial cannabis licensing. The undue concentration rules have not been eliminated, as some have falsely claimed. LA has recently changed details about the policy, in a way that will allow more retail dispensary licenses to be issued sooner. Some have feared, however, that the latest changes may introduce an element of unfairness to the licensing process.

Undue Concentration

Posted by Raza Lawrence on June 25, 2019

     

Retail Cannabis Licensing Draft Ordinance Heads to L.A. City Council

Posted by Margolin & Lawrence on June 4, 2019

On Tuesday, May 28, the Los Angeles City Attorney Michael Feuer filed a draft ordinance regarding retail cannabis licensing.

LA Phase 3 Major Updates

Posted by Margolin & Lawrence on May 2, 2019

NEW PHASE 3 LEGISLATION APPROVED BY CITY COUNCIL

On April 30th, the Los Angeles City Council approved new legislation to begin the third and final Phase of cannabis licensing within the City of Los Angeles no later than the end of next month.

Phase 3 will include two rounds of applications for Storefront Retailer Licenses in addition to one round of applications for Non-Storefront (i.e., Delivery) Retailer Licenses.

Priority will be given to Tier 1 and Tier 2 Social Equity Applicants for all three rounds. Additionally, each round will operate on a first-in-time rule. In other words, the first application submitted will be given priority over succeeding applications with premises within 700 feet of the property. Licenses will be issued on a first-come-first-serve basis.

 

 

 

PHASE 3: ROUND 1, ROUND 2, & DELIVERY PILOT PROGRAM

The upcoming Phase of cannabis licensing will give priority to applicants under the Social Equity Program, a program designed to provide reparations to individuals who have been disproportionally impacted by the war on drugs. Social Equity Applicants will receive expedited application review among other benefits through the program. Eligible applicants in the program will be classified as either Tier 1 or Tier 2 applicants, depending on the criteria they meet. To qualify for Tier 1 or Tier 2 Applicant status, individuals must have lived in a Disproportionately Impacted Area (DIA) for a minimum amount of time and cannot own an Existing Medical Marijuana Business (EMMB). The City of Los Angeles has listed a set of zip codes that currently qualify as DIAs. The City announced that it may add additional zip codes to this list in the future.

ROUND 1 (STOREFRONT RETAIL LICENSING)

After all Tier 1 and Tier 2 Applicants have been verified and notified by the DCR, the DCR will begin accepting applications for Round 1 of Phase 3. Only verified Tier 1 or Tier 2 Social Equity Applicants will be eligible to submit an application during Round 1. Applicants must submit all required documents (see table) within a 14-day period to be announced by the DCR. The dates of the 14-day period have not yet been identified, but the City Council has ordered the DCR to begin this period no later than September 3, 2019. The DCR will distribute 100 licenses during Round 1 to the first 75 eligible Tier 1 Applicants and the first 25 eligible Tier 2 Applicants. Verified Tier 1 or Tier 2 Applicants can only apply for one license during Round 1.

ROUND 2 (STOREFRONT RETAIL LICENSING)

Following the 14-day period of Round 1, the DCR will host a second round of Storefront Retail License application processing. Round 2 will only accept applications from verified Tier 1 and Tier 2 Applicants, just as in Round 1. For the second round of application processing, the DCR will accept applications during a 30-day period that has yet to be determined. Specific documents will be due within the 30-day application period, while all additional documents will be due within 90 days (see table). The first 150 eligible applicants will be issued licenses. The DCR may issue additional licenses until each Community Plan Area (CPA) has reached Undue Concentration. Tier 1 or Tier 2 Applicants who were issued a license during Round 1 may not apply for a license in Round 2. 

DELIVERY PILOT PROGRAM (NON-STOREFRONT RETAIL LICENSING)

The DCR has announced that it will launch a Delivery Pilot Program, where it will issue Non-Storefront Retail (i.e., Delivery) Licenses to the first 60 eligible applicants. The Delivery Pilot Program will accept applications from verified Tier 1 and Tier 2 Applicants as well as General Applicants. The DCR announced that delivery will be restricted to addresses within City limits unless special permission is granted by the DCR. 

 

 

 

  

PRE-VETTING PROCESS FOR SOCIAL EQUITY APPLICANTS

Applicants that qualify as Tier 1 or Tier 2 Social Equity Applicants must submit a preliminary application along with supporting documents to the Department of Cannabis Regulation (DCR) in order to have their Tier 1 or 2 status verified. The Ordinance voted into law yesterday identifies an unspecified 60-day period in which these preliminary applications will be received. Although the exact dates of the application window have yet to be determined, the City Council approved a motion ordering that the 60-day period begin no later than May 28, 2019. The DCR will not accept applications or supporting documents after the 60-day period. After the 60-day period ends, the DCR will determine whether or not applicants are verified as Tier 1 or Tier 2 applicants and notify all applicants of their final, non-appealable decision prior to the beginning of the Phase 3 Round 1 application window.

 

 

L.A. Retail Cannabis Legislation Moves Forward: What Happens Now

Posted by Margolin & Lawrence on April 22, 2019

 

 

Wednesday, April 17 - The City of Los Angeles Rules, Elections, and Intergovernmental Relations Committee discussed and approved an April 12, 2019 report and proposed ordinance from the LA City Attorney regarding cannabis licensing, with recommendations to make some amendments.

All recommendations were approved and will be redrafted for Council consideration and presented on Tuesday, April 30.

Today’s meeting moves the City closer to the opening of the highly anticipated Phase 3, which is the first chance that will allow the general public to receive dispensary licenses. The City Attorney was directed to make requested changes to the proposed new ordinance, to present for City Council consideration on April 30.

 

Notable Takeaways from Wednesday’s Meeting

The City of Los Angeles and the DCR have been hard at work in recent months, particularly as they sort through the specifics of Phase 3. While Phases 1 and 2 focused on existing cannabis dispensaries, non-retailers (i.e. growers and manufacturers), and social equity applicants, Phase 3 has been the main attraction for many entrepreneurs and would-be business owners looking to break into the industry.

In an earlier April meeting, the fate of Phase 3 was largely unknown due to funding. The DCR claimed that licensing was on hold as they awaited the Fee Deferral Program, which would allow Phase 3 to commence.

While a date has not been announced for the opening of Phase 3 applications, Wednesday’s meeting shed some light as to the direction the City and DCR are taking to solidify the process.

 

Among the notable new details that are coming out through these recent meetings and reports are:

● Changes to the Los Angeles Municipal Code establishing a first come, first served application process for retailer commercial cannabis activity licenses, with details regarding what is required for an application to be considered complete

● A proposal to allow applications for retail storefront dispensaries beginning January 1, 2020, in neighborhoods that have already exceeded Undue Concentration caps, with City Council approval

● Modifications to the process for issuing non-storefront retail licenses

● Allowing the Department of Cannabis Regulation (DCR) to grant Temporary Approval to Phase 3 storefront retail applicants

● Exempting Phase 2 applicants from the Undue Concentration requirements

● Setting deadlines for Phase 2 applicants to finalize their business location (May 15) and obtain Temporary Approval (substantial progress by July 1)

● Revising various requirements to qualify as a Tier 3 Social Equity Applicant and revising various benefits provided to Tier 1 and Tier 2 Social Equity Applicants

● Adding an additional reason to deny a license application — if the City has taken enforcement action against unlicensed cannabis activity at the same address since January 2018

● Clarifying the definition of license ownership relative to management companies

 

In addition, one of the recommendations to the draft ordinance that was approved on Wednesday was to instruct the DCR to finalize a timeline for all Phase 3 and Type 9 Pilot activities and post the information on the Department’s website. This indicates that an exact date for Phase 3 licensing could be established by April 30, if not sooner.

 

City Council Action Unanimously Passed Today

Posted by Margolin & Lawrence on April 11, 2019

The LA City Council held a meeting today to follow up on the April 1 meeting of the Budget Committee and approve the recommendations made on April 1.  After a good deal of discussion about the enforcement efforts against unlicensed dispensaries, the City Council approved all the recommendations with only minor revisions.  This means the licensing process can now move forward. 

The funding approved today by the City Council will allow the Social Equity Program to move forward, which is an integral part of the upcoming Phase 3 licensing process awarding cannabis licenses to new businesses in the City of LA.  So far, the licensing has been delayed while the City has worked through issues surrounding the Social Equity Program.  We are still waiting for the City to announce details of the timing of the next phase of LA cannabis licensing.  This phase will start with the issuance of 200 retail storefront and 40 retail delivery licenses, issued largely to Social Equity applicants.  

Now that the City Council has approved the Social Equity funding, we expect the licensing to open up soon, and now is the time for anyone interested in applying to find a property and get all the elements of their applications in order.
Before the ruling on the Social Equity funding, there was an update on enforcement efforts against unlicensed cannabis businesses, including utilities disconnects, cease and desist letters, and search warrants.

So far, the City has been shutting down the illegal businesses bureau by bureau.  The City started the crackdown in the Valley, where it has gone to 22 locations, with 10 more scheduled for next week when it will be finished with the Valley.  Then, it will move to the South bureau, where it will start with 10 locations in the Harbor area, and then move to the Southeast.  The City has also been disconnecting utilities from unlicensed businesses in the past month.  $2.3 million has been set aside by the police department for cannabis enforcement. 

L.A. Cannabis Licensing: A Waiting Game

Posted by Margolin & Lawrence on February 8, 2018

It’s been over a month since the state of California began issuing licenses for commercial cannabis businesses. The epicenter of this emerging legal market is right here in Los Angeles. While the City passed their final ordinance in December, the licensing process has been off to a slow start.

The agency that regulates cannabis in Los Angeles, the Department of Cannabis Regulations (DCR) has begun to issue licenses for Phase 1 existing dispensaries. These applicants can apply through a streamlined process for a temporary license which allows them to then apply for a temporary state license and operate legally in the City. At this moment, there are 98 eligible businesses operating in Los Angeles with Temporary Approval from the DCR for Local Operation – in other words, a temporary license for legal cannabis activity.

Los Angeles’ Department of Cannabis Regulations has divided cannabis applications into three distinct phases, each with their own set of criteria to qualify. Phase 1 will remain open through March 4, 2018. This is the most exclusive phase with likely only 200 or so stores qualifying. The current phase is reserved for applicants who are candidates for “Proposition M Priority Processing”, which comes with a strict set of requirements that effectively limit eligibility to preexisting medical marijuana dispensaries. For this reason, existing operators working in cultivation and manufacturing and entrepreneurs looking to launch new businesses are eagerly awaiting Phase 2. Under the Los Angeles Ordinance, Phase 2 is supposed to end in early April 2018. For this reason, we expected applications to open for Phase 2 in early February. We have contacted the DCR almost daily, and as of yesterday, there was still no time estimate on when Phase 2 licensing applications will open.

When it does begin, Phase 2 will require that applicants have a preexisting cannabis business – it’s reserved for “Non-Retailer Commercial Cannabis Activity Prior to January 1, 2016 Processing.” To qualify, a business must meet the following standards, as imposed by the LA Municipal Code:

1) the Applicant was engaged prior to January 1,2016, in the same Non-Retailer Commercial Cannabis Activity that it now seeks a License for; 2) the Applicant provides evidence and attests under penalty of perjury that it was a supplier to an EMMD prior to January 1, 2017; 3) the Business Premises meets all of the land use and sensitive use requirements of Article 5 of Chapter X of this Code; 4) the Applicant passes a prelicense inspection; 5) there are no fire or life safety violations on the Business Premises: 6) the Applicant paid all outstanding City business tax obligations; 7) the Applicant 13 indemnifies the City from any potential liability on a form approved by DCR; 8) the Applicant provides a written agreement with a testing laboratory for testing of all Cannabis and Cannabis products and attests to testing all of its Cannabis and Cannabis products in accordance with state standards; 9) the Applicant is not engaged in Retailer Commercial Cannabis Activity at the Business Premises; 10) the Applicant attests that it will cease all operations if denied a State license or City License; 11) the Applicant qualifies under the Social Equity Program; and 12) the Applicant attests that it will comply with all operating requirements imposed by DCR and that DCR may immediately suspend or revoke the Temporary Approval if the Applicant fails to abide by any City operating requirement.

Of these criteria, an essential component is the Social Equity Program; not only is it still in development by the city, but it also divides candidates into separate tiers within the program itself, which could add further complications to the application process.

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This blog is not intended as legal advice and should not be taken as such. The possession, use, and/or sale of marijuana is illegal under federal law.